What the 2014 economy needs most: trust
Many economic indicators are doing well. Yet Americans say they lack certainty about the future, perhaps starting with trust in government handling of the economy. The uncertainty gap needs to close.
Officially, the Great Recession ended in the United States more than four years ago. In 2013, the Dow Jones Industrial Average set a record high. Sales of new homes are again robust. America is nearing energy security. The economy is growing by 3 to 4 percent.
Yet close to 70 percent of Americans say the economy is in poor shape, according to a new CNN poll. More than half don’t expect it to improve a year from now.
What accounts for this "Great Gap" between perception and reality?
One reason is a high degree of uncertainty among workers and businesses. They simply do not trust the old pillars of the economy – government, banks, trading rules, or stable global trends. Restoring this trust since the 2007-09 recession has taken a very long time.
Much still needs to be done but Washington did take two actions in December that are worth noting:
First, Congress was able to stitch together a budget deal that locks in spending levels for two fiscal years. The agreement removes much of the unpredictability in government programs and hints at more cooperation. What drove this bipartisan effort? Lawmakers realized that their political fighting – which led to a government shutdown in October – only feeds into American anxieties about the future.
Second, the Federal Reserve took actions that greatly increased certainty for investors. It promised to keep interest rates near zero until at least mid-2015. And the central bank announced that it will start “a measured reduction” of its extraordinary purchases of Treasuries and mortgage securities in January. This latter move signals the Fed’s confidence that private lenders see more hope in making long-term investments.
What more can be done to reduce the level – and cost – of uncertainty about the economy?
Businesses need to know if Congress is serious about tax reform and about fixing mortgage giants Fannie Mae and Freddie Mac. The Obama administration must show better competence in implementing the Affordable Care Act (“Obamacare”) and the financial reform law known as Dodd-Frank. The rollout of both laws has been botched.
President Obama can make a final decision on the Keystone pipeline for bringing oil from Canada’s oil sands deposits. And Congress can provide legal authority and political backing to the president to complete negotiations for trade deals with Asia-Pacific nations and the European Union.
All this may be asking too much in the run-up to elections for Congress in November. Lawmakers could easily retreat to their ideological corners during the campaign season. Still, such steps are necessary to restore the public’s confidence that they can either find a job, keep the ones they have, or move to better-paying jobs.
While the jobless rate has gone down, the decline does not capture the fact that more people have left the workforce than entered it over the past 43 months. Many people have given up looking for a job. The US is a long way from returning to its pre-recession peak in total jobs.
Achieving a high level of economic confidence requires constant vigilance by government. Just as Warren G. Harding promised a “return to normalcy” after World War I, today’s leaders after the Great Recession need to step up and deliver a "return to certainty."